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M&A activity in focus

hay field
hay field
freedigitalphotos.net, Evgeni Dinev

One thing that's been largely missing since the market downturn began some two years ago, has been large acquisitions, in the multi-billion dollar range. However, that changed on Tuesday with BHP Billiton's $38.6 billion tender offer for Potash Corp., according to the Wall Street Journal. I don't recall the last time I heard numbers like that on an acquisition. In other news, Reynolds Group offered $4.4 billion for Pactiv, the maker of Hefty Bags according to the Associated Press. One thing is certain, it helped fuel some optimism in the financial markets on Tuesday.

I believe one reason why these deals haven’t happened lately is companies haven't had the resources or confidence during the economic downturn. Quite a few companies were also on financial life support, although they had great franchises. I'm sure many large companies had shopping/wish lists that were long as a country block, but there's always an issue most of us don't think about until we're there, 'how do I keep my money while everyone else is losing their money, so I can buy on the cheap?'

Another reason I believe a lot of big deals didn't get done over the past two years has to do with credit. A company doesn't just run to the bank and withdraw $39 billion that just happens to be sitting there. Like most people, companies have to borrow to make large purchases and as we all know banks haven't been in a lending mood.

This article should not be construed as a recommendation to buy or sell any specific investment mentioned or as investment advice related to your personal situation. The companies referenced herein are for informational purposes only. Please consult your financial advisors prior to making financial decisions. Michael Marshall is a Financial Advisor with Waddell & Reed, Inc., and is securities licensed in CA. Michael can be reached at mmarshall@wradvisors.com. Waddell & Reed, Inc. Member FINRA and SIPC

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